This post begins what I have decided to affectionately call my “grumpy old man” series. Maybe I’m just a burnt out entrepreneur, maybe I’ve been a bit short on sleep in recent months, maybe as a GenX, I will never understand something that is blindingly obvious to a GenY – but I really don’t like the term “Social Entrepreneurship.”
What is the alternative to ‘Social Entrepreneurship?’ Anti-social Entrepreneurship?
All entrepreneurship is intrinsically socially-directed to a greater or lesser extent, so why has this distinction evolved? Is there more to it than people just looking for an “alternative” culture to uncool capitalism … or a place to park weak business models that wouldn’t otherwise be credible without the “social” precursor?
A couple of weeks ago I was privileged enough to attend a YGL workshop at the Harvard Kennedy School where a room full of very interesting and bright people talked about some major issues facing our world. The notion of “conscious capitalism” came up as a core theme. In fact, we even studied a case based on Wholefoods as an exploration of how capitalism and social values can be made to intersect. It became clear from the class discussion that there were some people who are vehemently opposed to capitalism. For some people, it is a dirty word, akin to ‘rapist’ or ‘pedophile’ and the emotional backlash of even possibly being branded a capitalist was rather shocking to me.
Capitalism has a lot to answer for, particularly in recent times. I am as disgusted as anyone about what has happened to our financial systems – but we also have to remember that there is a dual-edged sword here. We cannot throw markets open to vast innovation and ideation and never expect any challenges. Similarly, when the State intervenes with the market, better make sure policy is right! The Canadian government will tell you that it was prudent macroeconomic leadership that kept Canada’s banks stable – that’s true – but it was also the fact that fairly straightforward policies prevented risk exposure to subprime mortgages. In fact, in the US, the subprime disaster happened simply because policy allowed it to happen (and some argue, encouraged it because of Freddie/Fannie’s involvement).
So Capitalism, free market dynamics and policy are a three-headed hydra that can occasionally become chaotic. We’ve learned that lesson many times and I am certain it will happen again.
I personally believe in a notion of capitalism that is much simpler. Friedman’s “Capitalism and Freedom” is one of my favorite treatises and, with few exceptions, reflects a philosophy that I personally subscribe to. The road has not been without bumps, but when we focus only on the rot in our “free” market economy, we lose sight of the fact that capitalism has done tremendous things to globally elevate our (collective) standard of living and has lifted a couple of BILLION people out of poverty. I do believe that when our markets are free (but somewhat regulated – I am not as passionate about deregulation as Friedman) and enterprise is able to flourish without oppression from the State or any other meta-influence, then there is a higher probability that society conforms to some kind of democratic principle and that people are freer, safer and have a higher standard of living as a consequence.
So – what has this got to do with “Social Entrepreneurship?” Well, I vehemently dislike this term for 4.5 reasons.
I’ll start with the .5 because it is most relevant to the past few paragraphs.
Just because you are a social entrepreneur, doesn’t mean you aren’t a capitalist. If you think this isn’t true, then you don’t understand what capitalism is. The economic idea of capitalism, which is pure and simple, is that you utilize (owned) assets/property in such a way that you create / increase value over time, notionally via a profit (economists – you are allowed to shudder at the loose variant of this definition but I think it suffices). Therefore, whatever “organization” you have built to do whatever good deed you are trying to achieve, if it is growing, thriving, increasing and achieving self-sustainability (usually financial) in its objectives, then you have quite possibly and inadvertently achieved an act of CAPITALISM. Your motivation may not have been personal profit, but in a way that is not necessarily a requirement. What’s important is that the enterprise resources of “www.dogoodstuff.org” increased. Unless I am mistaken, this is often a desired goal – even “non-profits” kind of like to see it happen.
… By the way, there is an intrinsic implication in capitalism that if you are going to monetize your resources/assets through exploitation, that this exploitation has to somehow be sustainable. Why? Because if you don’t, your ability to profit from exploitation of your assets will decline. Therefore poisoning rainforests in Ecuador to extract oil is, at the end of the day, poor judgment. In hindsight, it’s not difficult to see that in our current world, the financial and reputational damage to companies that do not conform to our social expectations can be vast. Environmental sustainability isn’t a goal anymore, it’s a hygiene factor. If you don’t have it, people don’t buy your stock – either on principle or on performance.
The remaining four reasons?
1) Today’s society demands a higher duty of care.
We hold the business world to the highest standards of behavior and ethics. It doesn’t always happen – and then punishment is meted – but to think that the corporate veil somehow isolates the ethos of a corporation from society is completely false and erroneous. In fact, our best corporations are those that reflect the broadest cross-section of society and perform well precisely because they encompass our societal norms. I reject that, on the whole, we live in a society that grows ever greedier, exploitative and cruel toward our fellow humans. On the contrary, I believe that our hyper-communicative and integrated world is becoming more compassionate, more aware, more mobilized and responsive. We are reducing poverty, we don’t tolerate gender discrimination, we (correctly) browbeat our politicians into allowing gay marriage we are even curbing greenhouse emissions … perhaps not in time for the polar bears, but it is happening.
So if this is our social trajectory, and our businesses are made up of members of society, does the business world really not share our trajectory?
For an entrepreneur starting a new company, it’s even tougher. There are no shortcuts and there are no “get out of jail” cards. The new venture has to 100% meet our expectations of gender equality, environmental sustainability, “triple bottom line”-type stuff, or it doesn’t hire the best people and it doesn’t last long. FROM DAY ONE. Gone are the times when the new entrepreneur thinks, “Yeah, I’m gonna have a ‘garage’ furniture varnishing plant and dump my waste in the local river.” Those business plans just don’t cut it. In fact our society is becoming so regulated and so demanding on entrepreneurs, that we end up spending as much time conforming to society’s expectations of conduct as we do getting our ventures off the ground.
I’m not arguing that this is bad, by the way (though a risk in some industries because the entry criteria is higher) but rather I argue that, by extension, all entrepreneurs are necessarily ‘social entrepreneurs’ because … drum roll… society demands it.
2) You want to change the world? Better be sure your idea makes it a better place.
There are many entrepreneurs who launch great businesses (and make serious money) from fairly humdrum activities. A better payment system, a different type of financing vehicle, selling stuff, training people, a smarter way of recycling waste, etc. These people create ventures that make our societies – and economies – more efficient, more compliant and they employ people. They are my heroes.
However for those entrepreneurs who can’t sleep at night because they have a blue-sky, game-changer idea, I can tell you – those people are not, on the whole, thinking about ways of exploiting and damaging the planet, or causing misery to others. They are trying to make clean energies, cure cancer or AIDS, feed people, purify water efficiently and make the world safer. Just because those people may become fabulously wealthy doesn’t mean that their ventures are not socially-directed. They could be as meaningfully described as a “social entrepreneurs” as someone trying to help unemployed youth find jobs, save the environment, rescue abandoned pets, preserve historical buildings or retrain single moms who have been made redundant from a declining manufacturing sector.
3) Job creation – is there a more meaningful social endeavour?
When I listen to some wishy-washy “social entrepreneur” talk about some wishy-washy business plan – I think to myself “if they want to use their skills for social benefit, why don’t they just create the opportunity to employ people?” If, as the … er… gold standard Wikipedia suggests, that Social Entrepreneurship is “an entrepreneurial venture that aims to achieve a particular social goal through positive externalities, in addition to profit” – then surely providing stable and high-quality employment is a positive social goal … and qualifies?
During the global financial crisis, we bailed out banks to protect liquidity to mega-corporations. But they still fired thousands of people. My industry (the pharmaceutical industry) alone has shed 150,000 jobs in the US in the past 3-4 years. In my businesses, during the financial crisis – even when we were gasping for cash (banks were not doing much for small business, despite the bail-outs, by the way…) I never fired anyone because the business had to make more money. I went for almost 4 years without personally taking a pay check and personally covered payrolls so that I could guarantee the salary of my employees, so that they could in turn pay their mortgages or send their kids to school, and generally meet their financial obligations.
As an entrepreneur, I am 100% committed to my employees and the stability of their jobs. Why? Partially because I believe that I will have a better performing company, but also because I believe that it is my social obligation as an entrepreneur – just as it is my positive obligation to care for the environment (i.e. properly dispose of toxic waste from the lab) and support our community…. oh, and do so while creating value for shareholders.
However, above all, I believe that good entrepreneurs care deeply about the people and communities that they are part of and job creation in these difficult times is certainly a praiseworthy goal. By the way, this is an achievement that entrepreneurs seldom get credit for. 65% of new job creation in the US (and most similar “western” countries) in the past two decades came from small/medium-sized enterprises (SMEs). In a place like Indonesia, it’s more like 70-75% (and, interestingly, driven more by women than by men).
Think about it.
4) Wealth enables philanthropy
Like many entrepreneurs, I am a giver. I usually give away about 20% of my personal earnings each year to a variety of charitable causes. I have put kids through university. I have contributed funds for medical research. I have paid for infrastructure to be built in developing countries. I’m not super-wealthy, though I have more financial freedom (isn’t that a funny combination of words, Dr. Friedman!?) than most people I know. My fortunes definitely wax and wane with my businesses (last few years have been harder), but in general – I consider myself to be very lucky.
It is my general experience with entrepreneurs that the more they make, the more they give. I am motivated by money. I value the freedom of not having to worry about whether I can pay for something, or go on a holiday or cope with an unexpected bill. I value the fact that I can afford clean food and water, better healthcare and live with a higher degree of security. But I do not believe that I have a right to any of those things, if I do not give something back. I am therefore also motivated to give my money away and the more I successful I am, the more this inclination has developed.
It’s also worth noting that despite our turbulent times, we have the largest private foundational wealth in the history of world – and people are giving. Yes, there are bad capitalists that waste money and lead excessive lives – but there are also many who quietly get on with the business of making sure that their spare time and money is directed at worthy causes. Yet again, an example of how the vast majority of successful entrepreneurs are intrinsically social entrepreneurs.
So here endith my rant. I have a sneaking suspicion that too many people who call themselves ‘Social Entrepreneurs’ simply don’t have ideas that are important enough or big enough to generate profit and sustainability alongside the intended beneficial consequence. In short, they are not entrepreneurs they are … er… just “social.” They should not be allowed a lower performance bar just because they choose to call themselves ‘Social Entrepreneurs.’
I have certainly seen plenty of crap social entrepreneurship business plans (and for clarity, at least as many lousy ‘regular’ entrepreneurship plans).
As a final comment – those of you who know me well know that I am intrigued by Islamic economics. I am not a Muslim and I have mixed enthusiasm about different aspects of the modern Islamic world … but the fundamental philosophy of Islam is fascinating, particularly in relation to concepts of wealth. There are a couple of great lines in Kard-i-Hasana in advice to the “Rich Man” (17:26) that should be a kind of credo for the entrepreneur – “Give the kinsman his due, and the needy, and the wayfarer, and squander not they wealth … those who believe and do good works … and pay the poor-due, their reward is with their Lord.”
I value the idea that entrepreneurs might even be more successful because we care about the world that we are part of – so even if you don’t buy into my argument that all entrepreneurs are social entrepreneurs, at least hope that – in time – they can be.